Automotive Exhaust System Repair Shops

Industry Snapshot

This industry covers exhaust system repair, which primarily involves the sale, installation, and repair of mufflers, tailpipes, and catalytic converters. It is distinct from businesses engaged in the overall repair of automobiles. Such businesses are primarily categorized in SIC 7532: Top, Body, and Upholstery Repair Shops and Paint Shops and SIC 7538: General Automotive Repair Shops. Businesses engaged in specialized automotive repair, such as fuel service, brake repair, and wheel alignments, are classified in SIC 7539: Automotive Repair Shops, Not Elsewhere Classified.
Car exhaust system service is typically provided by dealership garages and auto exhaust repair shops. Besides the existence of numerous "mom and pop" auto service businesses, the industry was led by a few relatively well-known repair shop chains, such as Monro, Midas, and Speedy International. Combined, the 8,260 establishments in the United States employed 30,390 and earned $1.68 billion in 2008 revenue.

Organization and Structure

Exhaust Systems
The exhaust system of every modern automobile requires frequent care and repair. Condensation in the typical exhaust flow, coupled with ordinary wear, will often result in the necessary replacement of the car's muffler and exhaust pipes. The result is a vehicle with minimal engine noise and an exhaust system that more effectively funnels toxic fumes produced by the vehicle away from the car's interior. When owners determine that their exhaust systems may need repair, they typically avoid do-it-yourself (DIY) replacements and seek the services of exhaust system repair shops. These repairs are also necessary for the owner to maintain car emissions that meet Environmental Protection Agency (EPA) standards. Auto exhaust repair shops install, repair, and inspect the proper pollution control devices.

A car's exhaust system consists mainly of an exhaust pipe, a muffler, and a tailpipe. The exhaust pipe collects the exhaust of a car through a series of exhaust ports in the internal manifold of a car engine. This exhaust is funneled to a downstream pipe and moved through the muffler. The tailpipe discharges the car's exhaust into the atmosphere after it has passed through the muffler.

The muffler is the main component of the exhaust system. It is basically a device that reduces the noise produced by the movement of gas and internal combustion of the car's engine. The typical shell of an automobile muffler is shaped like an oval that measures roughly 20 inches long, 10 inches wide, and 6 inches high. Its internal architecture is made of perforated steel tubes and a number of chambers separated by steel partitions. This combination of filters and tubes acts as a honeycomb that acoustically filters the exhaust sound. The typical muffler can reduce the sound pressure of a car's exhaust from 90 to 60 decibels, a 1,000-fold decrease. More expensive dual exhaust systems have four or more mufflers.

Federal regulations require that motor vehicles be fitted with emissions control devices. Therefore, a mechanism such as a catalytic converter has become an addition to a car's exhaust system. Since their initial requirement in 1975, catalytic converters have served to reduce harmful exhaust. Improved emissions allow the owner to comply with standards mandated by the Environmental Protection Agency.

Legislation to control automobile pollution is in the Clean Air Act, which was passed in 1956 with significant amendments in 1970, 1977, and 1990. Regulation of mobile pollution sources was considered controversial. In fact, an EPA study in 1979 attested to the difficulty involved with getting automobile owners to comply with state and federal standards requiring the installment and maintenance of properly functioning pollution control equipment, specifically the catalytic converter. The converter cleans the car's exhaust gases to meet EPA standards. Converters in the late 2000s are made of a honeycomb-like material that is lightly coated with palladium and platinum. These two elements, when in the presence of oxygen, aid in the reduction of hydrocarbons and carbon monoxide.

The emissions control system of a car does not become the responsibility of the owner until the manufacturer's warranty expires. At that point, problems with the catalytic converter usually lead the car owner to an auto exhaust repair shop that provides emissions control work. The most common difficulties with the converter are clogging and melt down. These two problems typically occur in high-mileage engines and result in exhaust problems. Converter failures can also be symptomatic of other problems.

The technicians at auto exhaust repair shops who are faced with converter problems have a number of options for diagnosis of the converter and accompanying emissions systems. Technicians may begin with a visual examination of the mechanism to discover any evident rust destruction, leaks, or broken connections. More complicated methods of testing the system include thump, temperature, and back pressure tests. These tests detect difficulties of the converter caused by circumstances such as build-up of phosphorous on the surface of the converter due to burning oil, foreign matter plugging the interior of the converter, excessive sulfur content in the fuel, anti-freeze leaks into the engine which pollute the converter, or broken or ineffective exhaust air pumps.

Technological threats to the exhaust repair industry have occasionally appeared in the form of improved components that require fewer repairs. For example, in the late 1980s, a stainless steel muffler was introduced that promised less erosion. Many of these advances acted to improve business. Although no major changes were made to the Clean Air Act after 1990, the EPA and high-density communities with smog problems continued to toughen rules for checking vehicle emissions. Some states and local communities began require emissions testing as part of the annual inspection process for auto licensing.

Advances in muffler and converter technology resulted in improved efficiency. Researchers at the Noise Cancellation Technology Labs in Connecticut invented an electronic muffler that utilized computer generated "anti-noise" to further mute engine noise. The new muffler, which could be produced for the same cost as conventional mufflers, improves engine power and fuel efficiency. Meanwhile, Corning Inc. developed a catalytic converter that would not require a car to warm up before operating effectively. These and similar developments for improvement to automobile exhaust systems did not appear to threaten the industry's steady increase in size and revenues.

The year-to-year fluctuation in the exhaust repair business was largely a result of weather (salt on snowy and icy roads causes corrosion) and the amount of technological change, creating large, fragmented growth in automotive aftermarket repairs. Acting as factors in favor of the industry were the declining ability of car owners to perform their own repairs because of more complex vehicles (particularly the dramatic increase in electronic components), less leisure time, and increasingly stringent emissions regulations that made more exhaust system inspections necessary. Likewise, the increase in vehicles on the road, vehicle miles driven, and the average age of cars contributed to the strength of the industry.

Current Conditions

Considering the overall sluggish economy of the late 2000s, the industry outlook for auto exhaust repair shops was relatively promising. Advancing technology, particularly in the area of mufflers and catalytic converters, and increased automobile emissions regulations promised to create more work for exhaust repair shops. In addition, an increase in the number of older cars on the road resulting from high car prices and a prolonged recession meant that more car owners were maintaining and repairing their cars rather than simply replacing them.

Specifically, the overall auto repair market was being affected by several, sometimes contradictory, trends in the late 2000s, all of which were fueled by an economic recession. First, because of high fuel prices and less disposable income available to consumers, Americans drove less. In fact, according to research conducted by A.M. Best, Americans drove 52 fewer miles in 2008 than in 2007, which had also seen a decline from the previous year--the first declines in U.S. miles driven since 1980. However, consumers were keeping their cars longer and spending more on repairs. According to the U.S. Bureau of Transit Statistics, the average age of registered vehicles in mid-2009 was 9.4 years, up from 9.2 years in 2008. These older cars require more maintenance and repairs. Although this trend worked in the industry's favor, research also showed that, in an attempt to save money, consumers were delaying nonessential repairs. Therefore, segments of the industry that provided service and repairs necessary to keep vehicles up and running performed better than those that offered less immediately necessary services, such as dent repair.

The industry was also affected by the demise of two giant auto companies. Both General Motors and Chrysler filed for bankruptcy in 2008 and hundreds of dealerships closed across the country. Chrysler alone closed nearly 800 dealership. As a result, independent and franchise auto repair shops scrambled to win the displaced dealership customers. For example, in 2009, AAMCO--which had expanded from its traditional service of transmissions to provide full-auto care, including mufflers and exhaust--announced a $30 million advertising campaign. With many dealerships either shuttering their doors or struggling to survive in the late 2000s, the competition for repair work was stiff. In general, however, the trend toward extending the life of vehicles favored independent and franchise auto repairers because more work is done beyond the life of the warranty. Because repairs under warranty are commonly required to be performed by dealer repair shops only, the growing number of vehicles on the road no longer under warranty grew the customer base of the independents. According to the National Automobile Dealers Association, revenues from dealership repair work fell in three of the four years from 2005 to 2008, and the trend was expected to continue in 2009.

Industry Leaders

One of the most successful companies was Monro Muffler Brake, Inc., with fiscal 2009 sales of $476.1 million, up 8.4 percent from $439.4 million in fiscal 2008. Founded in the 1950s by Chuck August, the company added brake shops and went public in 1991. Between 1987 and 1992, the company more than doubled its sales. Beginning in the early 1990s, the company aggressively opened new shops. In 1992, the company had 167 shops in eight states, predominantly in the Northeast. Overall, Monro's rapid expansion added 15 percent to square footage every year. Substantial growth occurred between 1991 and 1996, when sales climbed from $21.5 million to $117 million. By 1996, the company owned and operated 274 muffler and brake repair shops. Monro also came close to doubling its number of stores again in 1997. By 2009, Monro had 720 shops and serviced 3.4 million vehicles annually.

Monro's management strategy relied on advanced inventory control systems and exceptional customer service. The focus on customer service gave the company an advantage over its larger franchise competitors. The strategy manifested itself even in chairman Jack Gallagher's policy of personally replying to all customers' letters. This strategy tended to create a focus on customer satisfaction even at the shop level.

The typical Monro outlet and repair shop is 4,500 square feet with six service bays. Monro organized its stores around one key outlet, which carried a larger inventory and acted in a support role for smaller satellite shops. Monro improved its overall service ability when it implemented measures designed to result in more effective inventory management. Since the 1989 installment of a point of sale (POS) inventory tracking system, the company dramatically increased its ability to meet customer needs with on-hand inventory. This system improved customer satisfaction, increased gross margins, and allowed Monro to react more efficiently and effectively.

Monro repair shops were staffed by four to six mechanics who reported to a store manager. The company retained its quality mechanics by providing them with career growth opportunities. In fact, most regional and store managers began their careers with the company as service technicians. In addition, the company paid a premium hourly wage to its mechanics who received an Automobile Service Excellence award. This emphasized the company's desire to insure quality service and acted as an incentive for employees to become certified mechanics.

Besides Monro, significant players in the industry included Midas, Inc., of Itasca, Illinois, and Toronto-based Speedy International, Inc. Midas had about 2,500 locations worldwide in 2009, with 90 percent of its $187 million in 2008 earnings coming from North American locations. Founded in 1956 by Fred Karp, Speedy became a private multinational company with operations in Canada and the United States (through CarX Muffler and Brake). Although he sold it to Tenneco Inc. in 1968, Karp bought the chain back in 1988 when Tenneco underwent a major restructuring.

Meineke Car Care Centers had over 900 locations in the late 2000s. Formerly Meineke Discount Mufflers, the privately held company changed its name as it broadened its customer base by including maintenance and installation services such as brakes, tires, and oil changes.